Tuesday, August 7, 2012

Nu Skin (NUS) - Vol Makes Multi-Year High on Headline That Combines the Word "China" With Phrase "Marketing Scheme"

NUS is trading $44.68, down 8.6% with IV30™ up 16.3%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Nu Skin Enterprises, Inc. is a global direct selling company with operations in 52 markets worldwide. The Company develops and distributes anti-aging personal care products and nutritional supplements under its Nu Skin and Pharmanex brands, respectively.

This is a vol and stock story; specifically a company that is now at a multi-year high in vol based on a news story out today that combined the word "China" with the phrase "Multi-level Marketing Scheme" in a headline. And that is not so good...

Let's start with the Charts Tab (six months), below, then get into the news. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side, we can see that abrupt multi-day decline in late Apr through mid-May. On 4-25-2012 the stock closed at $59.90. By 5-15-2012, the stock closed at $40.22, or 33% lower in three weeks. During that period, NUS released earnings on 4-26-2012 (BMO) which beat expectations on revenue and profits. That day the stock closed down more than $4 to $55.93, or a single day drop of 7.1%. Here's the news surrounding that earnings and then some headlines from the following three weeks (the source for all of the headlines are Yahoo! Finance).

For the quarter ended March 31 (Q1), Nu Skin Enterprises beat expectations on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded significantly and GAAP earnings per share grew significantly.

Margins expanded across the board.

Source: The Motley Fool via Yahoo! Finance Nu Skin Enterprises Beats on Both Top and Bottom Lines, by Seth Jayson.

Nu Skin drops 5% to $50.65 following Herbalife sell-offtheflyonthewall.com (Tue, May 1)

Nu Skin announces $250M increase in share repurchase authorizationat theflyonthewall.com (Wed, May 2)

Nu Skin Announces Update To Its Record-Setting Ageloc Product Roll-OutPR Newswire (Tue, May 8)

Nu Skin, Herbalife Continue Sliding After Barron's Storyat Barrons.com (Mon, May 14)

Looking back to the chart we can see that the stock rose more than $6 on 5-16-2012 and then fell right back down the next day. The news surrounding those two days is included below but basically the shares rose because the firm wasn't mentioned by a high profile short-seller, and then fell the next day, likely because that's a stupid reason to rally (right?).

5-17-2012 (BMO)

It’s been proven time and time again that what top investors say at conferences tends to move the markets. But at Wednesday’s Ira Sohn investment conference in New York, Greenlight Capital’s David Einhorn may have done something unprecedented: he helped send shares of multi-level marketing networks Herbalife (HLF) and Nu Skin (NUS) higher by not mentioning them.

Source: Barron's via Yahoo! Finance; Herbalife, Nu Skin Jump Based on What Einhorn Didn’t Say, written by Avi Salzman.

5-17-2012 (During market hours)

What: Shares of personal-care and nutritional-products supplier Nu Skin Enterprises (NYSE: NUS ) are falling 11% today, a day after receiving a boost from comments not made by short-selling specialist David Einhorn.

So what: That's right, Nu Skin and multi-level marketing rival Herbalife rallied yesterday on news that David Einhorn, in listing off his short-selling targets, mentioned Martin Marietta, Dick's Sporting Goods, and anything related to China but did not mention Nu Skin and Herbalife in his discussion. Herbalife was also upgraded by brokerage Caris & Co. this morning following the lack of comments by Einhorn on the sector.

Source: The Motely Fool via Yahoo! Finance; Why Nu Skin Enterprises Shares Were "Einhorned", written by Sean Williams.

So that's a view from a few months ago. But, there's a lot going on more recently as well. On 7-25-2012 the stock closed at $44.00. Earnings came out the next morning and by 7-27-2012,the stock closed at 50.99, or 16% higher.

Then, on 8-1-2012, the stock popped to as high as $56.52 from a prior day's close of $51.01. After all that, though, the stock actually closed down at $49.48. The announcement that day was of a $0.20 quarterly dividend (but that was the prior divi amount). I don't actually know what happened that day to the shares.

On the vol side, we can see how the implied dropped off of earnings and then almost immediately started to rise again. In fact, the level as of this writing is a new annual high and is in fact at least a two-year high. The news today is disturbing in that it has a key catch phrase -- "China Operations." Here's the news today:

Shares of Nu Skin Enterprises Inc (NUS.N) fell as much as 12 percent after short-seller Citron Research published a report alleging that the personal-care products maker is operating an illegal multi-level marketing scheme in China.

Source: Reuters via Yahoo! Finance; Nu Skin shares fall after short-seller questions China ops. Reporting by Ranjita Ganesan; Editing by Anthony Kurian

The fear surrounding NUS (and HLF) with respect to their multi-level marketing approach (note, I didn't call it a "scheme") is palpable. Throw in the possibility of something happening in China, and it's gasoline on a fire, or in options speak, multi-year highs in vol.

Let's turn to the Options Tab, below.

We can see how the skew shapes are consistent while the vols rise monotonically from the back to the front. In English, the option market reflects substantially elevated risk in the near-term relative to the mid-term. That risk is a multi-year high.

Finally, let's turn to the Options Tab for completeness.

Across the top we can see the monthly vols are priced to 85.44%, 63.50% and 56.70%. I note again how elevated the front is to the back. Whatever these allegations are from Citron, the option market reflects the higher likelihood of some sort of resolution in the near-term (i.e. before Aug) than in the mid-term.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment